FITTERS (9318)

Last: RM 1.05

Target: RM 1.45

Fire Protection Specialist             FITTERS Diversified Bhd (‘FITTERS’) commenced business in 1970s as fire protection specialist. Undertaken by its Fire Services Division, its notable projects completed in the past include KLCC Lot C (office retail), Solaris Dutamas (mixed development), Putrajaya Parcel 4G8 & 4G9 (government offices), Sepang Gold Coast (resort homes) and Jusco Melaka (shopping complex).

Niche Specialists Themed Works within its Property Development & Construction Division        Its second business segment is Property Development & Construction Division where it has expanded into construction and engineering through its engineering arm, FITTERS Engineering Services Sdn Bhd with over 30 years of experience in the industry. Meanwhile, its property development unit has rolled out high take up demand for its ZetaPark (Setapak) and ZetaDeSkye (Jalan Ipoh). Its next project is on a 50-acre land in Rawang and shall be named as ZetaResidence with estimated GDV of RM300mil and it is expected to sustain FITTERS growth going forward.

Also, FITTERS is involved in specialists themed works via its subsidiary, Z’ODD Design Sdn Bhd. The theme park design specialist is little known to most but its quality projects covers familiar names such as KL Cosmo theme park, KidZania Malaysia, Legoland Malaysia, Genting theme park, Fun Oasis in Saudi Arabia, Go Planet theme park in Latvia, Ain Adhari National Park in Bahrain, Qingdao indoor park in China, upcoming Ocean Quest Marine Park and Ocean Splash Water Park in Desaru. Fitters’ strong track record will give it the edge to bid for the many potential specialist theming works <see below>. 

Upcoming listing of FUTURE NRG Sdn Bhd                        Its third business segment is Renewable & Waste-to-Energy Division housed under its FUTURE NRG Sdn Bhd. With capability to process biomass, medical and industrial wastes into renewable energy, FUTURE NRG Sdn Bhd is seeking listing on Singapore Exchange’s Catalist market.

Expansion into water pipes         Last month, FITTERS embarked on expansion into oriented PVC pipes as this new business is expected to begin production in Sep 2014 following completion of a RM80 million plant in Kuantan.

Undemanding Valuation               The stock has an unchanged target price of RM0.92 by Hwang DBS Research since Feb 2013 and has received very little coverage by others. Since the last unchanged target price set by Hwang DBS Research, Fitters has chalked up impressive record high profit of RM42.57 million for FYE 31 Dec 2013 (outperformed Hwang DBS Research's forecast of RM40 million) with ROE of 17.3%. 

With such outperformance, the stock should be upgraded towards its past 10 year average P/E of around 10x which is on the lower band of BursaMalaysia Small Cap P/E. <see below> 

Based on Hwang DBS last forecast, Fitters is expected to achieve PAT of RM45 million (EPS 15.4 sen) for FY14 and FY15. That translates to a fair value of RM1.45 <see below>

The company has also formalized dividend payout ratio of 30% its net profit from FY2014 onwards and thus expected to provide dividend yield of at least 4.4% based on current entry point.